Do Gold Mining Stock Prices Follow Cycles?

Usually when I write in this blog, I try to look at some aspect of the gold market, or silver market, in which I have expertise, and at the same time that thing, or fact or theory is not well known or talked about among the readers of the blog. In short I attempt to bring something fresh to the table of discourse on the subject of gold investing.

This week I considered mining stocks. There are many other people who talk or write about mining stocks, so I appreciate that adding information on this is entering a crowded space. One way to freshen things up is to bring some market history into the conversation. History has a tendency to repeat from time to time, and somehow surprise everybody when it does so. But not all that many mining companies have a long history what with the limited lifespan of their mines, takeovers, mergers and so on.

Newmont Mining is an exception though. It was founded in 1921 (wikipedia says 1916 but I take Newmont's own date of 1921 ) by William Boyce Thompson and consequently, this year Newmont is 96 years old. My first encounter with this stock came about 1989 when Corporate Raider billionaire Jimmy Goldsmith - using a stake generated from swopping ownership of Cavenham Forest (the 5th largest timber corporation in the US) tried to take Newmont over and break it up for resale as parts. Newmont resisted and survived these attacks. It also fended off unwanted advances from Consolidated Goldfields, Hanson Industries and T Boone Pickens about that time.

Newmont is big. I thinks it's the second biggest gold producer, after Barrick Gold Corp, and it's the only gold mining company included in the S&P 500 Index. Last quarter Q1 2017 it produced 1.23 million ounces of gold.

The above attempts to take ownership of Newmont took place during the nineteen year long 1980's gold bear market following the gold price high during 1980. Newmont is a stock that billionaires have historically become attracted to when it was down after a general gold bullion market decline.

This long history and large capitalization means there is liquidity in the stock of Newmont. Liquidity is something I look for when beginning to analyze a financial asset. Liquidity is one of the glues that hold cycles together, and cycles is one thing I look for.

Are there cycles in the price of Newmont? Let's see what I can find.

Here is Newmont relative to the HUI Index:

That's three and a half years of outperformance there. This is one to watch.

So what if any cycles did I find? I decided to look for larger swings first. So I chose a monthly timeframe.

This is using a double logarithmic plot. And it looks cyclical, doesn't it?

If you count along either the highs or lows in the above chart it becomes apparent that, for the last thirty years or thereabouts, Newmont has made highs to highs and lows to lows from seven to nine years apart.

So I ran an algorithm to test for such cycles. In monthly 7 to 9 years would be 84 to 108 months. The results were disappointing. There are not many repetitions of such long cycles, I have data since 1983, and as a result the cycles had not built up a strong track record. Also the length keeps changing from 7 to 8 sometimes to 9 and so on. So reliability is a problem.

So to get around this I looked for smaller nested sub cycles that might add up build into to a 7-9 year "parent" wave and this is what I found:

Length of Hypothetical cycles in months:

5.64, 6.79, 12.52, 17.79, 68,98, 72.60

Here is what these look like (synthetic cycle composite in green):

It is an intriguing fit, isn't it?

I added the dates of the forecasted turns in black. But I do not expect that forecast to work.

If you look, you can see that during the period since 2011, the price of Newmont has already been departing from the forecast made by these cycles, and not only that, but the difference between the forecast and reality is increasing. So i wouldn't trust it.

The reason I show it here is that there could still be a use for this faulty analysis. If I stand back and take the broadest result, and avoid taking the details I can say this:

Since 1993, Newmont has made a low every 7 to 9 years on average, this period varies each time, and is a tendency that may already be gone completely or it may just be changing again.

What can this do? The last low was October 2008 so if I add 7 to 9 years onto October 2008 I get late 2015 to late 2017.

So look at this chart of Newmont:

So I am, based on these cycles, looking for a low between 2015 and 2017. The low at end of 2015-early 2016 fits this nicely.

But what about the errors so visible in that "idealized cycle" chart? My thinking on this is that I don't trust that chart! But regardless of that it did do one thing. It made me go looking for a possible 7 to 9 year variable pattern. And that is enough. You see, there is a nine and a quarter year cycle in the bond market. So if the central banks have a 37 year cycle in their minds, and their published research papers show that they have, then 9.25 is a quarter of that, a nested sub cycle of a 37 year cycle in interest rates. So this is a second, external reason why there might be a nine year swing up and back again in gold. The price of gold, and the inflation adjusted rate of interest on bonds are closely correlated. And the price of gold should have correlations with the price of a big producer like Newmont.

This gives me a great interest in trying to identify the next low in the price of Newmont. Because the 2016 low may be the low. But if it wasn't, then the next low will be it. So buying the later of such a set of lows would be safer than buying the earlier low if you see what I mean. In theory!

In which case a downtrend line can be put over the recent highs in Newmont, and if price breaks it that is one thing. I don't buy things after they go up, rather after they go down! But if price should decline under such a trendline to a lower level, say between now and 12-18 months from now - then a break to the upside of that downtrend might be a good entry for what would follow. Of course there would also have to be other signals and triggers to buy, and levels to set stops off to limit risk, but that's always the case.

It's all a scenario. A construct, or an idea. But it interests me for obvious reasons.

Like all stock market ideas, only time will tell if it has any value or not. It stimulates the brain synapses to wonder about these kind of possibilities. Exercises the old gray matter. And without exercise we lose our abilities. So debating these scenarios should be a good thing in itself, whichever decision we eventually come to about them.

Best regards,

ArgentusMaximus

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The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmAndPrice. The author advises that he trades and holds market positions in accordance with his own opinions.

21 Comments

Just got back from my first fellow Turdite social -- highly recommended! It's so nice to carry on a conversation with one of the "enlightened". When two people start out on equal footing (and awareness), it's all gravy . . .

I just settled back with my "perfect Negroni" and up pops this new treatise! Time to read,

My first question would be, what does that great Newmont chart look like overlain by your best current bond chart, same scale... to see if those differences (where NEM is early now, compared to the plotted path) are explained away by the bond market, or if another low is more probable. Would that relationship being some clarity, in terms of whether a new low is coming or it's off to the races?

Anyway, great work, as usual!

RNP subscribers get this stuff all the time, very valuable learning experience and great tools. Well worth my subscription ;-)

It's probably a good idea to consider bullion:bonds first. And after that then dive deeper to look at NEM:bonds.

Weekly:

and below, daily:

In general terms the 50 and 200 week, and the 50 and 200 day red and blue moving averages might be considered as three separate declining trendlines (200day = 50 week approx so those two count as one).

The weekly shows that GLD has been building a rising base against TLT for 18 months already. The daily shows a sharp decline towards a retest of the low in the GLD:TLT ratio, and a prospective/potential new low, or failure to make one.

Unlike the above bullion, NEM against TLT is holding at support thus far. This indicates it's superior strength compared to bullion when measured against the fiat based bond market alternative. This of course hints of advance warnings of inflation being spoken about in certain corridors.

Great work as usual AM. Your thoughts have raised a question.. You stated Central Banks have a cycle, "So if the central banks have a 37 year cycle in their minds, and their published research papers show that they have, then 9.25 is a quarter of that, a nested sub cycle of a 37 year cycle in interest rate"

First question is which central banks have you evaluated?

What was the published research papers?

What about IMF and the SDR against Comex US gold bullion? Or even the TLT against the SDR priced in gold? Then against the various other central banks as you have pointed out. This might help establish a cycle for each bank and then help with more sub cycles. Plus Forex market analysis..

Every major Central Bank is maintaining a negative REAL (inflation-adjusted) interest rate. And yet the price of "gold" falls...

The papers? I would have them on file. It goes way back and it come back into discussion from time to time. I wouldn't remember which particular titles contain which particular comments with regard to this. Maybe a search engine might get you to the ones I have read. Limit the search to the various party's websites and plug in keywords until you get the archive hits. Start with BIS and IMF.

More subcycles as well as master cycles in those people's activity. I have listed them on TFMR various times. G-V (geopolitical-violence effect) which I developed, for example contains a lot of input factors ... the cycles of these guys are pretty much etched in stone. Dewey might also be a good source. Ray Tomes too.

A cycle for each bank? That was what Gann tried. He even went into lifecycle of institutions to find phases of behaviours. The Foundation for Study of cycles are deep into that. I won't call it unproductive - it does work - but I found more productive alternative approaches that take less time.

Testing for yourself? It's all been printed already and available. Try 2.25, 4.5, 9, 18, 36, 72, 144, and multiples x 10 of those for starting out, and branch out as you begin to see. It's not linear. Expert systems can't see it.

Why global central bankers’ great monetary experiment is about to explode.

During the past ten years, we have witnessed unprecedented manipulation of stock, bond, and property prices by global central banks. The inflation of these grotesque asset bubbles will not end well as indicators in the USA point towards an economic recession.

For the past twelve years, Ben Bernanke and Janet Yellen have been piloting the US Federal Reserve Bank with the same hubris as Captain Edward John Smith when he cheerily departed Southampton at the helm of the RMS Titanic. The big difference: around 1,500 people died due to Captain Smith’s arrogance and incompetence; whereas, Bernanke and Yellen’s arrogance and incompetence regarding the “magicing-up” of trillions of dollars in global credit as a substitute for consumer growth will end in epic policy failure.

Left this morning at 5am with the family for a much-needed vacation, so this is quite brief- on the road and on my phone, so my apologies. First, thank you very much for the incredible charting/linkage to bonds. Quite a relationship.

My first, simplistic pass at the periods of discontinuity is that they seem to coincide with times of populist revolt/rejection of status quo. The unexpected gains by conservative/UKIP in 2015 UK elections followed by Cameron's announcing that Brexit would be put to a vote. Then Brexit itself, then Trumps win. Not perfect, but perhaps proxy measures of perception/fear of loss of control.

If there is a low to come, would the likelihood of a higher low be more probable so that making an entry now, reduces the risk that the low is already in which would open the door to the chance of chasing an upward move as a result....If that makes sense.

There is a certain relationship that embodies both amount of price difference and time elapsed that seems to apply there. I am looking for something to appear in other words. In my way of doing these things, the longer it takes the lower it has to go. But I will say that I am diametrically opposite to the popular wisdom in saying that.

There is a trendline for which if the market gets below it, the low has to be a lower low, and if it gets above that trendline the later low has to be a higher low.

I am aware that the ruling institutions, BIS, IMF, EU et al, relax their paranational rules on the ruling class at national level during the months prior to elections and referenda to avoid winds of change gaining momentum.

China Becomes First Country in the World to Test a National Cryptocurrency

China's central bank has developed its own cryptocurrency, which is now being tested. Cryptocurrencies have the potential to not only benefit China, but the rest of the world, due to their basis in blockchain.

I found a few interesting articles. The first concerns the fate of Teresa May.
"The UK government is now paralyzed by electoral politics just when the BREXIT negotiations are just getting underway.

Make no mistake about it, if May is defeated in the coming vote, we will see a major shock wave around the globe ramifications for the security of Europe as a whole."
This side of the pond is pretty well paralysed also.
Here is the very interesting part, VERY telling.
"If the Labour Party wins a new general election thanks to the students, they are clueless as to what his far-left brand of Marxism will do. Corbyn has, among other things, suggested the UK should get rid of its nuclear weapons and withdraw from NATO. It is Britain who supplies the backbone to NATO in Europe. Should Corbyn actually act on these radical ideas, he will certainly destabilize Europe as a whole. However, the mere expectation and/or uncertainty of a Corbyn-led UK would further unsettle every aspect of Britain from the political to the economic future of the nation. Corbyn is proudly a Marxist and he will take Britain back to the Dark Ages."

Think about it. Who would Britain ever use their nukes against? Ireland, perhaps? NATO was used to completely trash Yugoslavia. That was their crowning achievement recently. NATO is now in the process of trying to force Russia into a war. NATO is doing it's best to screw up MENA as much as possible.
"take Britain back to the Dark Ages."
Britain is being completely over run by invaders who rape and pillage. They have NOTHING to lose by running away from foreign entanglements.
"security of Europe as a whole." The security of Europe is being purposely destroyed by a handful of politicians who are hard at work to accomplish population replacement. https://www.armstrongeconomics.com/i...e-of-collapse/

Everybody knows that the banks run the drug business. HOW MANY banks are involved?
" Sindona teamed up with IOR and the Vatican’s chief US banker Continental Illinois to buy Milan-based Banca Privata Finanziara (BPF) and Geneva-based Banque de Financement. The consortium launched Moneyrex in Rome, which over 850 international banks used to move Italian mafia and P-2 heroin proceeds out of Italy. Much of this was laundered through the Vatican to Switzerland. "
The article goes into a lot of detail about the murder of the Pope and MANY others.https://hendersonlefthook.wordpress....mes-of-zurich/

"What we are witnessing is better described as a crumble than a collapse."
"Whatever our globally heralded ‘constitutional’ political system might once have been, it clearly no longer is. It’s regressed to the point where it’s every man, woman and child for themselves. Confirmation of our decline springs from study after global study showing America’s solid hold on the lower middle of world rankings…and sinking fast."
"nce we crest the peak and start our descent, we cannot hold on tight enough nor do we have the courage to let go and change course. Therefore we drive our own ship of state directly onto the rocky shoals. The nation simply follows the individual in the same manner the body follows the direction of the head."

"Neither you nor I can personally save those people begging on the side of the road. The socioeconomic system is failing because we are failing morally, physically, mentally, emotionally, spiritually, as individuals, as a community and as a nation."The Greater Depression | Zero Hedge
You should read the whole article. It's about all the street people who have really hit bottom. Part of this is because of the breakdown of the family.
If the bond market does indeed collapse, there will be many millions more people who fall through the cracks and die.

"The gold standard was a hard task master, all right. You couldn’t devalue your way out of trouble. You couldn’t run up a big domestic budget deficit. The central bank of a gold-standard country (if there was a central bank) was charged with preserving the convertibility of the currency and, in a pinch, serving as lender of last resort to needy commercial banks. Growth, employment and price stability took their own course. And if, in a financial panic or a business-cycle downturn, gold fled the country, it was the duty of the central bank to establish a rate of interest that called the metal home. In the throes of a crisis, interest rates would likely go up, not down."
You also could not have long wars.

"The modern sensibility quakes at the rigor of such a system. Our forebears embraced it. Countries observed the gold standard because it was progressive, effective, civilized. It anchored prices over the long term (with many a bump in the short term). It promoted balance in international accounts and discipline in domestic ones. Great thinkers -- Adam Smith, David Ricardo and, yes, John Maynard Keynes himself in the wake of World War I -- extolled it.

The chronic problem in gold-standard days was the one that continues to bedevil us moderns: how to maintain a stable currency when lenders and borrowers run amok."
"The story of American finance, he contended, was the story of paper credit subverting sound money:" "It’s the cause of panics under monetary systems both metallic and paper. Which is to say that we earthlings will never achieve financial perfection. It seems that the trouble (or, at least, one trouble) with money is credit and that the trouble with credit is people."http://www.gata.org/node/17449/print

Few people know that Zürich became the gold center of the world in 1968 when the London Gold Pool collapsed and the London gold market stayed closed for two weeks, while markets in other countries continued trading with increasing gold prices.

The Zürich Gold Pool was founded in 1968 by the largest banks in Switzerland. The establishment was triggered by the temporary closing of the London bullion market which marked the collapse of the London Gold Pool, a system of maintaining the Bretton Woods System of fixed-rate convertible currencies and defending a gold price of US$35 per troy ounce by interventions in the London market. As a reaction to the temporary closure of the London gold market in March 1968 and the resulting instability of the gold markets and the financial systems in general, Swiss banks acted immediately to minimize effects on the Swiss banking system and its currency by establishing a private gold trading organization, the Zürich Gold Pool, which helped in establishing Zürich as a major trading location for gold.

The consequences of the collapse of the London Gold Pool of central banks, such as the closing of the London bullion market, caused significant instability in the trading and valuation of gold. Without a market, the South African gold producers sought alternative trading partners. The accompanied weakness of the British pound ended the world dominance of London as the major exchange of gold bullion. Swiss banks acted immediately to minimize effects on the Swiss banking system and its currency. By informal agreements between Union Bank of Switzerland, Swiss Bank Corporation, and Credit Suisse, these banks established a gold trading arrangement, the Zürich Gold Pool of private banks. The technical functioning of the Pool was based on the collaboration of its three member banks: Union Bank of Switzerland, Credit Suisse, Swiss Bank Corporation.

Your charts clearly demonstrate that we are potentially approaching the end of the bearish cycle for precious metals, and in theory should be entering a new bullish cycle. Perhaps one of the issues that has diverged the performance of specific publicly traded companies are the variables such as wasteful spending on mergers and acquisitions as occurred during the 2011-2012 runup in metal prices. The other factor may be things as the recent GDXJ rebalancing that diverges and creates larger imbalances between large caps and small cap miners. Personally my interest is investing only into optionality miners, rather than miners taking metal out of the ground today and selling them at current prices. The GDXJ rebalancing and the increased market cap of the large caps will force extraordinary premium buyouts of smaller optionality companies (in theory). What's less unclear and potentially more important to determine however, is in the context of the bigger picture, where are we in terms of the business cycle. Here are some very interesting articles: Time Money - https://timemoney.com/

Not everthing is so dark and gloomy always as some of the clickbait titles would like us to believe. It appears that the Trump reinflation hope trade has lost steam, but personally I do not believe hope will be fully lost until mid to late 2018. In other words, we may need more patience for things to play out. If Trump is able to deliver on the tax cuts or abolish ACA then that could further prolonge a debt and equity binge a few years out (past 2019). Here is an interesting article on the debt cycle that may give us a potentially better indication as to when the cycle will turn in the opposite direction: https://timemoney.com/when-is-the-next-recession/

While I agree with Craigs insight that we could possibly see new multi year highs in metals in Q4 of 2017, sadly I think we may have to wait a bit longer, perhaps till 2018. Just my opinion. You're welcome to disagree with it.

DISCLAIMER: The charts and analysis provided here are not recommended for trading purposes. Trade at your own risk. The Turd provides knowledge not direction. Turd holds no liability for your trades and decisions but he's happy to take credit when credit is due, particularly through the "donate" button. Read more...